Do you know someone that was surprised on receiving their first paycheck to learn about Social Security, Medicare and tax withholding?
Did you know that these amounts may still be owed when they are not taken out of your check?
This is the case when you work for yourself as an independent contractor, or preneed insurance agent.
Employers match the Social Security and Medicare taxes of their employees. Therefore, when you are self employed, you must pay the employee portion most workers are familiar with in addition to the employer portion. Together the self-employment tax (SE tax) is currently 15.3% in most circumstances of your net earnings. To complete your estimated tax payment, add withholding for income taxes (rates vary depending on your circumstances from 10% – 39.6%).
To avoid penalty, you must generally pay your combined estimated SE tax and income tax quarterly via estimated tax payments (due 4/15, 6/15, 9/15 and 1/15 for individuals) equal to 90% of your current year tax or 100% of your prior year tax. Paying your estimated taxes timely not only saves on potential penalties but also helps with cash flow come time to file your taxes.
Depending on your circumstances the SE tax rate or amounts you must pay may vary. Resources and information are available from various sources including: Your local CPA, IRS website, IRS Publication 505 and Form 1040-ES (Estimated Income Tax Payments for Individuals) and related instructions.
Through this and subsequent articles we hope that you may gain a few tips that will make the tax aspects of your life as an independent preneed agent more manageable.
Article written by Richard R. Dahl, a CPA and Senior Tax Manager with Security National Life Insurance.
The content of this article is not intended as tax advice and cannot be used for avoiding tax penalties or promoting or recommending any transaction. Individual circumstances should be discussed with a qualified tax professional.